A Pension is an income that one will need at retirement. While we may be compelled to think of “Retirement” as a tedious phase of our life – it is in fact a stage marked by: Limited Income, Dependency on children, Sacrifices & hardships and Difficulty in meeting expenses. Therefore, we must ‘Plan’ today for a healthy, happy retirement tomorrow.
Provident funds and pension funds are types of retirement plans used around the world. Pension funds are offered by employers and governments, usually offering a retirement benefit to participants equal to a portion of their working income.
Other than employers and government contribution an individual can voluntarily invest in pension schemes offered by various asset management companies. Voluntary Pension Scheme (VPS), a retirement scheme, is a pool of investment owned by investors and managed by a licensed Pension Fund Manager.
Investor has various benefits of investing in a Pension Fund:
- Option of investing money as per the risk appetite of the Participant, Voluntary Pension Funds allows the Participants to choose the allocation schemes according to their investment horizon, risk tolerance and return objective.
- Tax Credit, The Participant are entitled to tax credit (20% of taxable income and up to 50% of previous year taxable income) on his/ her contribution.
- Tax free growth in investment The Contributions made by the Participants and/ or their employers (if any), plus the investment income, are accumulated tax free in the Sub-Funds until the Participant retires.
- Option to withdraw lump sum amount (50% of accumulated value) free of tax at retirement A Participant can choose to receive a lump sum payment (up to 50% of his/her accumulated balance) when he/she retires, free of tax
- Option to withdraw funds in case of early retirement due to disability In case of unfortunate early retirement due to specified disability that render a participant unable to work, all benefits which otherwise are available on the retirement age becomes entitled, subject to approved medical evidence.
- Pension Fund Continuity Voluntary Pension Funds continue even after change of employer unlike provident and gratuity funds. In other words the account stays in case of change in jobs by the Participants and they can continue to contribute on their own or through their new employer into their respective Individual Pension Accounts.
- Pension Fund Portability Participants of VPSs can change their Pension Fund Manager or the Pension Fund, once a year by giving 21 days prior notice. Further, participants can choose to change their selected Allocation Scheme, twice a year.
8. Professional management, Pension Funds are managed by professional fund management team who have the requisite knowledge and successful track record to manage such funds.